API statement on Senate Banking Committee markup of financial reform legislation

WASHINGTON, March 23, 2010 —The American Petroleum Institute commented on the Senate Banking Committee’s markup of financial reform legislation:

“While API supports efforts by Congress to improve transparency and accountability in U.S. financial markets, we are concerned by the lack of a strong, clear exemption for end-users from a clearing mandate and margin requirements.

“Energy commodities account for about one half of one percent of the notional value of all over-the-counter (OTC) derivatives. Still, these OTC derivatives serve an important function for the oil and natural gas industry and thousands of other businesses in the United States. They are used as a risk-management tool to hedge against fluctuations in commodity prices, interest rates and currency exchange rates, creating market stability and keeping costs down for businesses and the consumers who use their products.

With such a low percentage of total derivatives transactions, requiring end-users to exchange trade, centrally clear, or margin their hedges will do nothing to address systemic risk.  In contrast, compliance with these requirements could drain billions of dollars of working capital from the nation’s oil and natural gas industry at a time when that capital could otherwise be used to expand infrastructure, invest in new technologies and create American jobs.

“We remain hopeful a bipartisan agreement can be reached that preserves the ability for energy end-users to utilize OTC derivatives to hedge risk.”  

Updated: March 23, 2010